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refers to the rise and fall of economic activity relative to its long term growth trend |
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study of the economy as a whole. National income, unemployment, inflation, and how monetary and fiscal policies affect economic activity. |
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studies consumers, producers, and suppliers operating in a narrowly defined market |
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the most common measure of economic activity. The total market value of all FINAL goods and services (excluding goods that have been resold) produced within the borders of a nation in a particular time period. US GDP includes foreign owned factories in the US no excludes the output of US owned factories abroad. |
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measures the value of all final goods/services in current prices. Not adjusted for inflation. |
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adjusted to account for changes in the price level. Removes inflation. |
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Real GDP = (Nominal GDP/GDP deflator) * 100 |
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Expansionary period - business cycle |
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rising economic activity (real gdp) and growth. profits, labor, demand, and price are all rising. |
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high point of economic activity. Profits at max. Firms face capacity constraints and input shortages, leading to higher costs and a higher overall price |
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Contractionary phase - BC |
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falling economic activity and growth. Profits fall |
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low point of econ activity. firms are likely to experience significant excess production capacity leading them to reduce the size of their workforce and cut costs. |
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recovery phase aka expansionary phase again |
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econ activity begins to increase and return to its long term growth trend. profits stabilize and demand rises. |
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when economy experiences negative real economic growth. Two consecutive quarters of falling national output. |
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Leading indicators (before economy moves...prediction) |
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avg. new unemployment claims, building permits for residences, avg length of the workweek, money supply, prices of selected stocks, orders for goods, price changes of materials, index of consumer expectations |
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Lagging indicators - AFTER |
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prime rate charged by banks, average duration of unemployment, bank loans outstanding |
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coincident indicators - DURING |
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industrial production, manufacturing and trade sales |
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Reason for fluctuations in business cycle? |
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shifts in aggregate demand and/or agg. supply |
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the maximum quantity of all goods and services that households, firms, and the government are willing and able to purchase at any given price level. |
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the max quantity of all goods and services producers are willing and able to produce at any given price level. |
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Upward sloping...as prices rise, firms are willing to produce more |
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Vertical. if all resources are fully utilized, output is solely determined by the factors of production |
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Real GDP on the AD/SRAS/LRAS graph |
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shift curve left. -AD -GDP -P |
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Curve shifts right. +AD +GDP +P |
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shift left. -SRAS -GDP +P |
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shift right. +SRAS +GDP -P |
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increase in wealth: +w +spend +AD +GDP +P Decrease in wealth: -w -spend -AD -GDP -p Increase in real interest rates: +i -borrow -spend -AD -GDP -P Decrease in real interest rates: -i +borrow +spend +AD +GDP +P Confident outlook: +spend +AD +GDP +p Uncertain outlook: -spend -AD -GDP -p |
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Factors that affect AD continued |
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appreciated domestic currencies: -export +import -AD -GDP -P Depreciated dom. currencies: +export -Import +AD +GDP +p increase in gov spending: +AD +GDP +P Decrease "" -AD -GDP -p Increase in consumer taxes: -spend -AD -GDP -P Decrease "": +spend +AD +GDP +p |
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a $1 increase in gov spending results in a greater than $1 increase in GDP. Formula: [1/(1-MPC)]*change in spending. 1-MPC is the marginal propensity to save. |
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Marginal propensity to consume. the change in consumption due to a $1 increase in income. |
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increase in input prices: -produce -SRAS -GDP +p Decrease "": +SRAS +GDP -p Supplies are plentiful: +SRAS +GDP -p Supplies are curtailed: -SRAS -GDP +p |
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most common economic measures |
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GDP, unemployment rate, inflation rate, interest rates |
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Calculate GDP - expenditure approach |
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The sum of these... G: government purchases I: Investment C: personal consumption E: NET exports |
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Calculate GDP - Income approach |
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I: income of proprietors P: profits of corps I: interest (net) R: rental income A: adjustments for net foreign income T:Taxes E: Employee compensation D: depreciation |
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the market value of final goods and services produced by residents of a country in a given time period. GNP includes goods and services that are produced overseas by US firms and excludes goods that are produced domestically by foreign firms. |
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ratio of number of ppl classified as unemployed to the total labor force. The total labor force includes all non-institutionalized individuals 16 years of age or older who are either working or actively looking for work. Unemployed ppl must be actively looking for work. |
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Unemployment rate forumla |
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Number of unemployed/total labor force *100 |
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normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off. |
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jobs available in the market do not correspond to the skills of the work force and unemployed workers do not live where the jobs are located. |
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result of seasonal changes in the demand and supply of labor. |
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when real GDP goes down, unemployment goes up and vice versa. Recession-based unemployment. |
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natural rate of unemployment |
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sum of frictional, structural and seasonal unemployment |
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no cyclical unemployment. does not mean zero unemployment |
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sustained increase in the general prices of goods and services. |
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sustained decrease in the general prices of goods and services |
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measured as the percentage of change in the consumer price index from one period to the next |
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measure of the overall cost of a fixed basket of goods and services purchased by an average household. |
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Change in CPI or inflation rate |
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[CPI(this period)-CPI(last period)]/CPI(last period) *100 |
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increase in demand causes prices to rise. |
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rising costs of inputs may drive down SRAS and cause prices to rise. |
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inflation makes money lose purchasing power. those with fixed amounts of money will be hurt |
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holding monetary liabilities |
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inflation makes payback on fixed loans good. debt will be paid with inflated dollars. |
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real interest rate =nominal interest rate - inflation rate |
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purchase and sale of government securities in the open market |
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fed purchases govt securities +AD +GDP +p |
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decrease in the money supply |
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Fed sells government securities -AD -GDP -P |
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interest rate fed charges member banks for short term loans. raising the discount rate discourages borrowing and thus AD goes down do to a lack of spending. Vice versa |
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Changes in the required reserve ratio |
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RRR is the fraction of total deposits banks must hold in reserve. raising decreases money supply. |
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8 steps in strategic management |
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Define the firms vision and mission, set goals, define the objectives, decide what to measure and take a baseline measurement, Strategic analysis, create the strategic plan, implement the plan, evaluate and revise the plan as necessary |
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define vision and mission |
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mission statement usually represent one or two line descriptions of what the organization is in business to do |
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there are two broad and distinct paths for achieving organizational goals: cost leadership and differentiation |
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financial (profits, cashflow, eliminate debt) non financial (improve quality and satisfaction) |
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Decide what measure to take and take a baseline measurement |
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financial statements, quality control measures, satisfaction survey, measure employees |
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strengths weaknesses opportunities and threats |
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set of steps to achieve the objectives of the firm while staying in line with the firms vision and mission statement. |
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the plan should be able to address those areas that will be applicable at all the different levels of the firm so that the plan is executed as a team that shares a common goal. |
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the quantity of a good individuals are willing and able to purchase at a given price, all else equal. |
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change in quantity demanded |
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microecon: change int he amount of a good demanded resulting solely from a change in price |
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change in the amount of a good demanded resulting form a change in something other than the price of the good. |
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coke v. pepsi. price of coke goes up, then demand for pepsi goes up. |
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factors that shift the demand curve |
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WRITEN: Changes in... Wealth Related goods prices income (consumer) tastes (consumer) expectations (consumer) number of buyers served by the market |
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factors that shift supply curve |
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ECOST: changes in... expectations in price of the supplying firm costs of production (inputs) other goods price and demand subsidies or taxes technology |
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